Wednesday, April 8, 2020

Oil Sinks Again, As Saudi-Russia Price War Blazes

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What’s happening: Crude oil prices dropped on Tuesday ahead of a virtual meeting of the major oil producers later this week.

What happened: After rising earlier in the session, WTI crude oil gave up all gains and settled lower following a US government report lowered the outlook for oil prices and domestic production for this year and the next.

Meanwhile, Saudi Arabia and Russia continued fuelling their war of words, despite both economies feeling the pain of tumbling oil prices.

Why it matters: The US EIA (Energy Information Administration) lowered its 2020 outlook for both WTI and Brent crude oil prices. The EIA slashed the forecast by around 23%, projecting WTI oil price at $29.34 per barrel and Brent crude prices to $33.04 a barrel.

The market seems to be pricing in a low probability of a ceasefire between Saudi Arabia and Russia. Even as President Donald Trump assured markets of an agreement being reached between the US, Russia and Saudi Arabia to reduce oil production, hopes of this happening are dwindling.

In fact, the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) turned the spotlight on the US, asking the country to lower their outputs. However, the US Energy Department said the country’s production had already been cut in response to lower demand.

The OPEC+ group is scheduled for a virtual meeting on Thursday, in an attempt to put an end to the price war that is flooding the already oversupplied oil market at a time when major economies around the world are shutting down their operations to control the COVID-19 pandemic.

As demand for oil declines, inventories keep building. Late Tuesday, the API (American Petroleum Institute) reported a rise of 11.9 million barrels in US crude supplies for the week ended April 3.

WTI crude for May delivery tumbled 9.4% to settle at $23.63 per barrel on the NYMEX (New York Mercantile Exchange), while June delivery of Brent crude declined 3.6% to end at $31.87 a barrel. WTI crude was trading higher by 5.5% at $24.92 in Asian session.

What to watch: Markets will be looking for some positive news regarding production cuts at the OPEC+ meeting. Investors are awaiting EIA’s report scheduled for release today. The EIA is expected to report a gain of 8.4 million barrels in crude stockpiles for the week ended April 3. Gasoline stocks are also likely to rise by 5.4 million barrels, while distillate inventories are projected to fall by 500,000 barrels.

The Markets Today

     

Investors will be focusing on European stocks today, with the region’s markets closing higher for the second consecutive day.

Context: European stocks closed higher on Tuesday as investor sentiment was boosted by reports of a decline in new infections and deaths from the coronavirus pandemic in some of the most affected regions in Europe.

Details: The daily number of new coronavirus cases declined for the fourth consecutive day in Spain on Monday, which may prompt the country’s government to consider gradually lifting the lockdown.

European markets also reacted to news of Boris Johnson being shifted to ICU as his coronavirus symptoms worsened. The UK PM has asked his Foreign Secretary Dominic Raab to temporarily take over his duties.

The pan-European Stoxx 600 index rose 1.7% on Tuesday, with travel and leisure stocks among the top performer. The FTSE 100 climbed 2.2%, while the German 30 rose 2.8% and the French 40 closed higher by 2.1%.

Shares of Cineworld jumped around 50% on Tuesday after the cinema chain announced its coronavirus plan to lower dividend and defer the salary for its executive directors. Carnival’s shares, which have declined more than 75% this year, made some recovery and gained 23% in yesterday’s session.

Coronavirus cases around the world have exceeded 1,430,100 with around 82,100 deaths, according to data from Johns Hopkins University. Spain has reported more than 141,900 COVID-19 cases, while Italy’s case-count stands at 135,500.

What to watch: Investors are expecting the Eurozone finance ministers to provide further funding support to relieve some pressure from the economy. The finance ministers of the group nations are scheduled to meet next week.

Other Markets: US markets closed slightly lower on Tuesday, with the Dow, S&P 500 and Nasdaq 100 down by 0.12%, 0.16% and 0.33, respectively.

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What else to watch today

     

South Africa's SACCI business confidence index, Mexico’s industrial production and monetary policy meeting minutes, Russia’s total vehicle sales, Canada’s housing starts and building permits as well as the US MBA mortgage applications and FOMC minutes.